ECB backs rate hike despite banking sector chaos

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The European Central Bank announced another big spike in interest rates as the global banking sector reels from SVB, Credit Suisse and potential bank collapses.

The central bank for the 20 countries that share the euro has been locked in a fight toECB staff now see inflation averaging 5.3% in 2023, 2.9% in 2024 and 2.1% in 2025. Inflation excluding energy and food continued to increase in February and ECB staff expect it to average 4.6% in 2023, which is higher than foreseen in the December projections.

Christine Lagarde, President of the European Central Bank , gives a press conference at ECB headquarters in Frankfurt, Germany, Thursday, Oct. 27, 2022. The central bank said its current macroeconomic projections were finalized in early March before the recent emergence of financial market tensions. As such, these tensions imply additional uncertainty around the baseline assessments of inflation and growth.

"The Governing Council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability," the bank continued. "Its business-as-usual approach could be seen as vote of confidence in the European banking sector," said Danni Hewson, head of financial analysis at AJ Bell. "That said, the ECB was at pains to make clear that it was acutely aware of current tensions and indicated it was ready and able to step in if things deteriorate further."

 

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